medium · Market Microstructure spread-econ
An analyst calculates a Variance Ratio VR(5) = 0.70 for a stock.
What does this specifically indicate about the stock's price behavior?
- The stock is following a pure random walk
- The stock clearly shows persistent price momentum.
- 30% of the variance is transitory (mean-reverting)
- Fundamental volatility has increased by 70%
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